Marginal Salary Raises Reflect Cautious Times

The economy may be picking up, but cautious employers are granting only marginal pay increases and don’t plan to do much more than that in 2005, the Associated Press reported.

Two recent surveys found that on average, companies are planning for salary increases of 3.3 percent to 3.5 percent this year, which makes this the third consecutive year when average raises fell below the 4 percent or more level that was commonplace in the 1990s. Next year the number is expected to hover around 3.5 percent, the surveys found.

Despite the modest increases, worker pay is increasing at a faster rate than inflation but even the most modest pay increases could be eaten up by higher health care contributions from workers, the AP reported.

And, even though the market still favors companies over workers, companies are reluctant to take on the permanent burden of large employee pay raises, analysts reported.

The Mercer survey and another one done last month by the Conference Board, found this new trend is unlikely to change much in the foreseeable future.

"There's been a change in the deal, so to speak, between employees and employers ... and I don't see anything on the horizon to ease that up,'' Steven Gross, a compensation consultant for Mercer, told the AP.

Just a few short years ago the dynamic was decidedly different, when the market was ruled by workers who were lured by promises of large pay increases. Many of these raises were larger than the company intended but were necessary to keep good workers. Some companies are choosing instead to offer one-time bonuses rather than long-term pay increases.

"What it comes down to is companies are being very, very cost conscious,'' Charles Peck, compensation specialist with the Conference Board told the AP. "Companies are being very cautious about incurring fixed expenses.''

While raises may be stuck, the trend of freezing pay appears to be over, the surveys found.